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Exam 17: S Corporations

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Question 21

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The built-in gains tax does not apply to S corporations that never operated as C corporations.

A) True
B) False

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Question 22

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The estimated tax payment rules for S corporations generally follow the rules for C corporations.

A) True
B) False

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Question 23

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XYZ was formed as a calendar-year S corporation with Xavier, Yolinda, and Zach as equal shareholders.On September 15, 2019, XYZ's S election was terminated after Zach sold his XYZ shares (one-third of all shares)to his solely owned C corporation, Zach, Inc.Absent permission from the IRS, what is the earliest date XYZ may again elect to be taxed as an S corporation?

If an S corporation shareholder sells her stock to a nonresident alien, it will automatically terminate the S election.

An S corporation shareholder's allocable share of business income that is determined to be from a passive activity is considered net investment income for purposes of the net investment income tax.

Which of the following is not a true statement?

Separately stated items are tax items that are treated similarly for tax purposes as a shareholder's share of ordinary business income (loss).

At the beginning of the year, Clampett, Inc., had $100,000 in its AAA and $60,000 of earnings and profits from prior C corporation years.During the year, Clampett, Inc., earned $50,000 of ordinary income and paid $200,000 in distributions to its shareholders.Assume that J.D.owns 25 percent of Clampett, Inc., his basis in Clampett, Inc., at the beginning of the year is $30,000, and his share of the distribution was $50,000.How much, if any, of the distribution is taxable as a dividend?

Clampett, Inc., has been an S corporation since its inception.On July 15, 2020, Clampett, Inc., distributed $50,000 to J.D.His basis in his Clampett, Inc., stock on January 1, 2020, was $30,000.For 2020, J.D.was allocated $10,000 of ordinary income from Clampett, Inc., and no separately stated items.What is J.D.'s basis in his Clampett, Inc., stock after all transactions in 2020?

The specific identification method and monthly allocation method are methods an S corporation may use to allocate its income across short tax years that result from an involuntary S election termination.

Corporations taxed as S corporations offer the same legal protection to owners as corporations taxed as C corporations.

ABC was formed as a calendar-year S corporation with Alan, Brenda, and Conner as equal shareholders.On May 1, 2019, ABC's S election was terminated after Conner sold his ABC shares (one-third of all shares)to his solely owned C corporation, Conner, Inc.ABC reported business income for 2019 as follows: (Assume that there are 365 days in the year.) $\begin{array}{llcc}\quad \quad \quad \quad \quad \quad \quad \quad \quad \quad \quad \text { Period } & \text { Income } \\ \text { January 1 through April 30 (120 days) } &\$200,000\\ \text { May I through Decermber 31 (245 days) } &\underline{530,000}\\ \text { January 1 through December 31 } &\underline{\$730,000}\\\end{array}$ If ABC uses the specific identification method to allocate income, how much will it allocate to the S corporation short year and C corporation short year?

Shea is a 100 percent owner of Mets Corporation (an S corporation).Mets is a calendar-year taxpayer.On February 16, 2019, Mets filed an election to terminate its S election.Assuming Mets does not specify an effective date for the termination, what is the effective date of the termination?

Assume that at the end of 2019, Clampett, Inc.(an S corporation) distributes long-term capital gain property (fair market value of $40,000, basis of $25,000) to each of its four equal shareholders (aggregate distribution of $160,000) .At the time of the distribution, Clampett, Inc., has no corporate earnings and profits and J.D.has a basis of $15,000 in his Clampett, Inc., stock.How much income does J.D.recognize as a result of the distribution?

Assume that Clampett, Inc., has $200,000 of sales, $150,000 of cost of goods sold, $60,000 of interest income, and $40,000 of dividends.What is Clampett, Inc.'s excess net passive income?

Suppose Clampett, Inc., terminated its S election on August 28, 2019.At the end of the S corporation's short tax year ending on August 28, J.D.'s stock basis and at-risk amounts were both zero (he has never had debt basis) , and he had a suspended loss of $20,000.In 2020, J.D.made additional capital contributions of $5,000 on March 15 and $12,000 on September 5.How much loss may J.D.deduct in 2020?

S corporations may have no more than 50 shareholders, but members of the same family only count as one shareholder.

To make an S election effective as of the beginning of the current year, an S corporation must file IRS Form 2553 within three and a half months after the beginning of the year.

Assume that at the end of 2019, Clampett, Inc.(an S corporation) distributes property (fair market value of $40,000, basis of $5,000) to each of its four equal shareholders (aggregate distribution of $160,000) .At the time of the distribution, Clampett, Inc., has no corporate earnings and profits and J.D.has a basis of $50,000 in his Clampett, Inc., stock.How much income does J.D.recognize as a result of the distribution?

Assume Joe Harry sells his 25 percent interest in Joe's S Corp., Inc., to Tyrone on January 29.Using the specific identification allocation method, how much income does Joe Harry report if Joe's S Corp., Inc., earned $200,000 from January 1 to January 29 and a total of $1,460,000 from January 1 through December 31 (365 days) ?